ASSURED GUARANTY LTD. Forward Looking Statements
This Form 10-Q contains information that includes or is based upon forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements give the expectations or forecasts of future events ofAssured Guaranty Ltd. (AGL) and its subsidiaries (collectively with AGL,Assured Guaranty or the Company). These statements can be identified by the fact that they do not relate strictly to historical or current facts and relate to future operating or financial performance. Any or all ofAssured Guaranty's forward looking statements herein are based on current expectations and the current economic environment and may turn out to be incorrect.Assured Guaranty's actual results may vary materially. Among factors that could cause actual results to differ adversely are: •the development, course and duration of the COVID-19 pandemic and the governmental and private actions taken in response, the effectiveness, acceptance and distribution of COVID-19 vaccines, and the global consequences of the pandemic and such actions, including their impact on the factors listed below; •changes in the world's credit markets, segments thereof, interest rates, credit spreads or general economic conditions; •developments in the world's financial and capital markets that adversely affect insured obligors' repayment rates,Assured Guaranty's insurance loss or recovery experience, investments ofAssured Guaranty or assets it manages; •reduction in the amount of available insurance opportunities and/or in the demand forAssured Guaranty's insurance; •the loss of investors inAssured Guaranty's asset management strategies or the failure to attract new investors toAssured Guaranty's asset management business; 75 -------------------------------------------------------------------------------- Table of Contents •the possibility that budget or pension shortfalls or other factors will result in credit losses or impairments on obligations of state, territorial and local governments and their related authorities and public corporations thatAssured Guaranty insures or reinsures; •insured losses in excess of those expected byAssured Guaranty or the failure ofAssured Guaranty to realize loss recoveries that are assumed in its expected loss estimates for insurance exposures, including as a result of the failure to resolveAssured Guaranty's Puerto Rico exposure in a manner substantially consistent with the support agreements signed to date; •increased competition, including from new entrants into the financial guaranty industry; •poor performance ofAssured Guaranty's asset management strategies compared to the performance of the asset management strategies ofAssured Guaranty's competitors; •the possibility that investments made byAssured Guaranty for its investment portfolio, including alternative investments and investments it manages, do not result in the benefits anticipated or subjectAssured Guaranty to reduced liquidity at a time it requires liquidity or to unanticipated consequences; •the impact of market volatility on the mark-to-market ofAssured Guaranty's assets and liabilities subject to mark-to-market, including certain of its investments, most of its contracts written in credit default swap (CDS) form, and variable interest entities (VIEs) as well as on the mark-to-market of assetsAssured Guaranty manages; •rating agency action, including a ratings downgrade, a change in outlook, the placement of ratings on watch for downgrade, or a change in rating criteria, at any time, of AGL or any of its insurance subsidiaries, and/or of any securities AGL or any of its subsidiaries have issued, and/or of transactions that AGL's insurance subsidiaries have insured; •the inability ofAssured Guaranty to access external sources of capital on acceptable terms; •changes in applicable accounting policies or practices; •changes in applicable laws or regulations, including insurance, bankruptcy and tax laws, or other governmental actions; •the failure ofAssured Guaranty to successfully integrate the business ofBlueMountain Capital Management, LLC (BlueMountain, now known asAssured Investment Management LLC ) and its associated entities; •the possibility that acquisitions made byAssured Guaranty , including its acquisition of BlueMountain (BlueMountain Acquisition), do not result in the benefits anticipated or subjectAssured Guaranty to unanticipated consequences; •difficulties with the execution ofAssured Guaranty's business strategy; •loss of key personnel; •the effects of mergers, acquisitions and divestitures; •natural or man-made catastrophes or pandemics; •other risk factors identified in AGL's filings with theUnited States (U.S.) Securities and Exchange Commission (theSEC ); •other risks and uncertainties that have not been identified at this time; and •management's response to these factors. The foregoing review of important factors should not be construed as exhaustive, and should be read in conjunction with the other cautionary statements that are included in this Form 10-Q, as well as the risk factors included in AGL's 2020 Annual Report on Form 10-K. The Company undertakes no obligation to update publicly or review any forward looking statement, whether as a result of new information, future developments or otherwise, except as required by law. Investors are advised, however, to consult any further disclosures the Company makes on related subjects in the Company's reports filed with theSEC . If one or more of these or other risks or uncertainties materialize, or if the Company's underlying assumptions prove to be incorrect, actual results may vary materially from what the Company projected. Any forward looking statements in this Form 10-Q reflect the Company's current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to its operations, results of operations, growth strategy and liquidity. For these statements, the Company claims the protection of the safe harbor for forward looking statements contained in Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).
Available Information
The Company maintains an Internet web site at www.assuredguaranty.com. The
Company makes available, free of charge, on its web site (under
www.assuredguaranty.com/sec-filings) the Company's annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to
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Section 13 (a) or 15 (d) of the Exchange Act as soon as reasonably practicable
after the Company files such material with, or furnishes it to, the SEC . The
Company also makes available, free of charge, through its web site (under
www.assuredguaranty.com/governance) links to the Company's Corporate Governance
Guidelines, its Global Code of Ethics, AGL's Bye-Laws and the charters for its
Board committees. In addition, the SEC maintains an Internet site (at
www.sec.gov) that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC .
The Company routinely posts important information for investors on its web site
(under www.assuredguaranty.com/company-statements and, more generally, under the
Investor Information tab at www.assuredguaranty.com/investor-information and
Businesses tab at www.assuredguaranty.com/businesses). The Company also
maintains a social media account on LinkedIn
(www.linkedin.com/company/assured-guaranty/). The Company uses its web site and
may use its social media account as a means of disclosing material information
and for complying with its disclosure obligations under SEC Regulation FD (Fair
Disclosure). Accordingly, investors should monitor the Company Statements,
Investor Information and Businesses portions of the Company's web site as well
as the Company's social media account on LinkedIn, in addition to following the
Company's press releases, SEC filings, public conference calls, presentations
and webcasts.
The information contained on, or that may be accessed through, the Company's web
site or social media account is not incorporated by reference into, and is not a
part of, this report.
Overview
Business
The Company reports its results of operations in two distinct segments,
Insurance and Asset Management, consistent with the manner in which the
Company's chief operating decision maker (CODM) reviews the business to assess
performance and allocate resources. The Company's Corporate division activities
are presented separately.
In the Insurance segment, the Company provides credit protection products to the
U.S. and international public finance (including infrastructure) and structured
finance markets. The Company applies its credit underwriting judgment, risk
management skills and capital markets experience primarily to offer credit
protection products to holders of debt instruments and other monetary
obligations that protect them from defaults in scheduled payments. If an obligor
defaults on a scheduled payment due on an obligation, including a scheduled debt
service payment, the Company is required under its unconditional and irrevocable
financial guaranty to pay the amount of the shortfall to the holder of the
obligation. The Company markets its credit protection products directly to
issuers and underwriters of public finance and structured finance securities as
well as to investors in such obligations. The Company guarantees obligations
issued principally in the U.S. and the United Kingdom (U.K. ), and also
guarantees obligations issued in other countries and regions, including Western
Europe , Canada and Australia . The Company also provides other forms of insurance
that are consistent with its risk profile and benefit from its underwriting
experience. Premiums are earned over the contractual lives, or in the case of
homogeneous pools of insured obligations, the remaining expected lives, of
financial guaranty insurance contracts.
In the Asset Management segment, the Company provides investment advisory
services, which include the management of collateralized loan obligations
(CLOs), opportunity and liquid asset strategy funds, as well as certain legacy
hedge and opportunity funds now subject to an orderly wind-down. Assured
Investment Management LLC (AssuredIM LLC ) and its investment management
affiliates (together with AssuredIM LLC , AssuredIM) has managed structured,
public finance and credit investments since 2003. AssuredIM provides investment
advisory services while leveraging a technology-enabled risk platform, which
aims to maximize returns for its clients. The establishment, in the fourth
quarter of 2019, of the Asset Management segment diversifies the risk profile
and revenue opportunities of the Company. As of March 31, 2021 , AssuredIM had
$17.5 billion of assets under management (AUM), including $1.2 billion that is
managed on behalf of the Company's insurance subsidiaries.
Fees in respect of investment advisory services are the largest component of
revenues for the Asset Management segment. AssuredIM is compensated for its
investment advisory services generally through management fees which are based
on AUM, and may also earn performance fees calculated as a percentage of net
profits or based on an internal rate of return referencing distributions made to
investors, in each case, in respect of funds, CLOs and/or accounts which it
advises.
The Corporate division consists primarily of interest expense on the debt of
Assured Guaranty US Holdings Inc. (AGUS) and Assured Guaranty Municipal Holdings
Inc. (AGMH) (the U.S. Holding Companies), as well as other operating expenses
attributed to holding company activities, including administrative services
performed by operating subsidiaries for the holding companies.
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The Company reviews its segment results before giving effect to the
consolidation of financial guaranty VIEs (FG VIEs) and consolidated investment
vehicles (CIVs), intersegment eliminations and certain reclassifications.
Economic Environment and Impact of COVID-19
The novel coronavirus that emerged inWuhan, China in late 2019 and which causes the coronavirus disease known as COVID-19 was declared a pandemic by theWorld Health Organization in early 2020 and continues to spread throughout the world. Several vaccines have been developed and approved by governments, and distribution of vaccines is proceeding unevenly across the globe. The emergence of COVID-19 and reactions to it, including various closures and capacity and travel restrictions, have had a profound effect on the global economy and financial markets. While the COVID-19 pandemic has been impacting the global economy and the Company for over a year now, its ultimate size, depth, course and duration, and the effectiveness, acceptance and distribution of vaccines for it, remain unknown, and the governmental and private responses to the pandemic continue to evolve. Consequently, and due to the nature of the Company's business, all of the direct and indirect consequences of COVID-19 on the Company are not yet fully known to the Company, and still may not emerge for some time. As a consequence of the onset of the COVID-19 pandemic, economic activity in theU.S. and throughout the world slowed significantly in early to mid-2020, but began to recover later in the year and, at least in theU.S. , continued to expand in the three-month period endedMarch 31, 2021 (First Quarter 2021). InMarch 2021 , theU.S. Bureau of Economic Analysis (BEA) reported that real Gross Domestic Product (GDP) increased at an annual rate of 4.3% in the fourth quarter of 2020. In its initial estimate, the BEA reported that GDP increased 6.4% for First Quarter 2021. At the end ofMarch 2021 , theU.S. unemployment rate, seasonally adjusted, stood at 6.0%, down from 6.7% at the beginning of the period and a pandemic high of 14.7% inApril 2020 . In addition to providing for direct payments to individuals, the$1.9 trillion American Rescue Plan Act of 2021, signed into law onMarch 11, 2021 , allocates$350 billion dollars in emergency funding for state, local, territorial, and tribal governments (including nearly$220 billion for states, theDistrict of Columbia , tribes and territories),$130 billion for local governments and nearly$40 billion for colleges and universities. Both the expanding economy evidenced by the GDP and unemployment figures above and the funds from the American Rescue Plan Act of 2021 will help, either directly or indirectly, many of the obligors of debt the Company insures, which we expect should reduce the number and size of payment defaults and claims on the Company's insurance policies. The level and direction of interest rates impact the Company in numerous ways. For example, low interest rates may make the Company's credit enhancement products less attractive in the market and reduce the level of premiums it can charge for that product, and, over time, also reduce the amount the Company can earn on its largely fixed-income investment portfolio. Specifically, the level of interest rates on theU.S. municipal bonds the Company enhances influences how high a premium the Company can charge for its public finance financial guaranty insurance product, with lower interest rates generally lowering the premium rates the Company may charge. On the other hand, low interest rates increase the amount of excess spread available to support the distressed residential-mortgage-backed securities the Company insures. The 30-yearAAA Municipal Market Data (MMD) rate is a measure of interest rates in the Company's largest financial guaranty insurance market,U.S. public finance. The 30-yearAAA MMD rate started First Quarter 2021 at 1.39% and rose towards the middle of the quarter to end the period at 1.75%. Despite the increase, the rate averaged 1.56% throughout the quarter, which is one of the lowest quarterly average rates on record. The Company believes that the policies being pursued by theFederal Reserve are designed to keep general interest rates low. In itsMarch 2021 meeting, theFederal Open Market Committee (FOMC) decided to keep the target range for the federal funds rate at 0% to 0.25%, noting it "expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time." In addition, it stated that "theFederal Reserve will continue to increase its holdings ofTreasury securities by at least$80 billion per month and of agency mortgagebacked securities by at least$40 billion per month until substantial further progress has been made toward the Committee's maximum employment and price stability goals." At itsApril 27-28, 2021 meeting, theFOMC kept the federal funds rates unchanged. The difference, or spread, between the 30-year A-rated General Obligation (GO) relative to the 30-yearAAA MMD remained in a tight range of 36-39 basis points (bps) (with an average of 37.5 bps) for the quarter. BBB credit spreads measured on the same basis started the year at 108 bps but narrowed throughout the quarter ending at 78 bps. Both the A and BBB spreads were some of the narrowest levels in over a decade. A larger credit spread is one factor that may allow the Company to charge higher premiums for its public finance financial guaranty insurance product. 78 -------------------------------------------------------------------------------- Table of Contents TheNational Association of Realtors reported that median existing-home sales prices hit a historic high inMarch 2021 of$329,100 , rising by a "record-breaking annual pace of 17.2%", with all regions posting double-digit price gains. As of the end of March, housing inventory remained at 1.07 million units, close to a record-low of 1.03 million units seen inFebruary 2021 when it was down by 29.5% year-over-year - a record decline. Properties typically sold in 18 days, also a record low. The S&P CoreLogic Case-ShillerU.S. National Home Price NSA Index, covering all nineU.S. census divisions, reported a 12.0% annual gain in February (the latest data available), up from 11.2% in the previous month. The 20-City Composite posted an 11.9% year-over-year gain, up from 11.1% in the previous month. Home prices in theU.S. impact the performance of the Company's insured residential mortgage-backed securities (RMBS) portfolio. Improved home prices generally result in fewer losses or more reimbursements with respect to the Company's distressed insured RMBS risks. The Company believes that state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various closures and capacity and travel restrictions or an economic downturn, are most at risk for increased claims. The Company's surveillance department has established supplemental periodic surveillance procedures to monitor the impact on its insured portfolio of COVID-19 and governmental and private responses to COVID-19, with emphasis on state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various closures and capacity and travel restrictions and related restrictions or an economic downturn. In addition, the Company's surveillance department has been in contact with certain of its credits that it believes may be more at risk from COVID-19 and governmental and private responses to COVID-19. The Company's internal ratings and loss projections for those distressed credits it believes are most likely to be impacted by the COVID-19 pandemic, including RMBS,Puerto Rico and certain other distressed public finance exposures, reflect this augmented surveillance activity. For information about how the COVID-19 pandemic has impacted the Company's loss projections, see Item 1, Financial Statements, Note 4, Expected Loss to be Paid (Recovered). ThroughMay 6, 2021 , the Company has paid only relatively small first-time insurance claims it believes are due at least in part to credit stress arising specifically from COVID-19. The Company currently projects nearly full reimbursement of these relatively small claims. The Company believes its financial guaranty business model is particularly well-suited to withstand global economic disruptions. If an insured obligor defaults, the Company is required to pay only any shortfall in interest and principal on scheduled payment dates; the Company's policies forbid acceleration of its obligations without its consent. In addition, many of the obligations the Company insures benefit from debt service reserve funds or other funding sources from which interest and principal may be paid during limited periods of stress, providing the obligor with an opportunity to recover. While the Company believes its guaranty may support the market value of an insured obligation in comparison to a similar uninsured obligation, the Company's ultimate loss on a defaulted insured obligation is not a function of that underlying obligation's market price. Rather, the Company's ultimate loss is the sum of all principal and interest payments it makes under its policy less the sum of all reimbursements, subrogation payments and other recoveries it receives from the obligor or any other sources in connection with the obligation. For contracts accounted for as insurance, its expected losses equal the discounted value of all claim payments it projects making less the discounted value of all recoveries it expects to receive, on a probability-weighted basis. See Item 1, Financial Statements, Note 4, Expected Loss to be Paid (Recovered). The nature of the financial guaranty business model, which requires the Company to pay only any shortfall in interest and principal on scheduled payment dates, along with the Company's liquidity practices, reduce the need for the Company to sell investment assets in periods of market distress. As ofMarch 31, 2021 , the Company had$701 million of short-term investments and$95 million of cash. In addition, the Company's investment portfolio generates cash over time through interest and principal receipts. The Company began operating remotely in accordance with its business continuity plan inMarch 2020 , instituting mandatory work-from-home policies in itsU.S. ,U.K. andBermuda offices. The Company is providing the services and communications it normally would, and continues to close new insurance transactions and make insurance claim payments and, in its asset management business, make trades and raise funds.
Key Business Strategies
The Company continually evaluates its business strategies. For example, with
the establishment of AssuredIM the Company has increased its focus on asset
management and alternative investments. Currently, the Company is pursuing the
following key business strategies in three areas: (1) Insurance, (2) Asset
Management and Alternative Investments, and (3) Capital Management.
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Insurance
The Company seeks to grow the insurance business through new business production, acquisitions of remaining legacy monolines or reinsurance of their portfolios, and to continue to mitigate losses in its current insured portfolio.
Growth of the Insured Portfolio
The Company seeks to grow its insurance portfolio through new business production in each of its three markets:U.S. public finance, international infrastructure and global structured finance. The Company believes high-profile defaults by municipal obligors, such asPuerto Rico ,Detroit, Michigan andStockton, California as well as events such as the COVID-19 pandemic have led to increased awareness of the value of bond insurance and stimulated demand for the product. The Company believes there will be continued demand for its insurance in this market because, for those exposures that the Company guarantees, it undertakes the tasks of credit selection, analysis, negotiation of terms, surveillance and, if necessary, loss mitigation. The Company believes that its insurance:
•encourages retail investors,
On the other hand, the persistently low interest rate environment and relatively tightU.S. municipal credit spreads have dampened demand for bond insurance compared to the levels before the 2008 financial crisis, and provisions in legislation known as the 2017 Tax Cuts and Jobs Act, such as the reduction in corporate tax rates, have made municipal obligations less attractive to certain institutional investors. The Company believes that some of theU.S. federal tax increases recently proposed could, if enacted, make municipal obligations more attractive to both institutional and retail investors. In certain segments of the global infrastructure and structured finance markets the Company believes its financial guaranty product is competitive with other financing options. For example, certain investors may receive advantageous capital requirement treatment with the addition of the Company's guaranty. The Company considers its involvement in both international infrastructure and structured finance transactions to be beneficial because such transactions diversify both the Company's business opportunities and its risk profile beyondU.S. public finance. The timing of new business production in the international infrastructure and structured finance sectors is influenced by typically long lead times and therefore may vary from period to period. While volatility and dislocation in the municipal finance market in theU.S. resulted in the Company issuing a reduced number of new insurance policies in late March and intoApril 2020 compared to the prior year, the Company began writing a higher volume of new insurance business as 2020 progressed, and the trend continued into First Quarter 2021. The$5.5 billion of municipal new issue par sold with the Company's insurance was the most the Company insured in any first quarter since 2010, and the Company's 65% share of insured municipal par sold was better than the Company's market share in any quarter since 2014. See "-- Results of Operations by Segment -- Insurance Segment" below. 80
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U.S. Municipal Market Data and Bond Insurance Penetration Rates (1)
Based on Sale Date
Year Ended
First Quarter 2021 First Quarter 2020 December 31, 2020
(dollars in billions, except number of issues and percent)
Par:
New municipal bonds issued $ 104.5 $ 87.8 $ 451.8
Total insured $ 8.5 $ 4.8 $ 34.2
Insured by Assured Guaranty $ 5.5 $ 2.3 $ 19.7
Number of issues:
New municipal bonds issued 2,698 2,119 11,857
Total insured 514 360 2,140
Insured by Assured Guaranty 252 161 982
Bond insurance market penetration based on:
Par 8.1 % 5.5 % 7.6 %
Number of issues 19.1 % 17.0 % 18.0 %
Single A par sold 27.0 % 19.1 % 28.3 %
Single A transactions sold 56.7 % 52.6 % 54.3 %
$25 million and under par sold 21.3 % 20.4 % 20.9 %
$25 million and under transactions sold 21.9 % 20.8 % 21.0 %
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(1) Source: The amounts in the table are those reported by Thomson Reuters. The table excludes Corporate-CUSIP transactions insured byAssured Guaranty , which the Company also considers to be public finance business. The Company also considers opportunities to acquire financial guaranty portfolios, whether by acquiring financial guarantorswho are no longer actively writing new business or their insured portfolios. These transactions enable the Company to improve its future earnings and deploy excess capital.
Loss Mitigation
In an effort to avoid, reduce or recover losses and potential losses in its insurance portfolios, the Company employs a number of strategies.
In the public finance area, the Company believes its experience and the resources it is prepared to deploy, as well as its ability to provide bond insurance or other contributions as part of a solution, result in more favorable outcomes in distressed public finance situations than would be the case without its participation. This has been illustrated by the Company's role in theDetroit, Michigan ;Stockton, California ; andJefferson County, Alabama financial crises, and more recently by the Company's role in negotiating thePuerto Rico Electric Power Authority (PREPA) restructuring support agreement (RSA) (PREPA RSA) and thePuerto Rico Sales Tax Financing Corporation (COFINA) plan of adjustment. The Company will also, where appropriate, pursue litigation to enforce its rights, and it has initiated a number of legal actions to enforce its rights with respect to obligations of theCommonwealth of Puerto Rico (Commonwealth) and various obligations of its related authorities and public corporations. OnMay 5, 2021 ,Assured Guaranty Municipal Corp. (AGM) andAssured Guaranty Corp. (AGC) entered into a plan support agreement (HTA/CCDA PSA) with certain other stakeholders, the Commonwealth, and the Financial Oversight andManagement Board for Puerto Rico (FOMB) with respect to thePuerto Rico Highways and Transportation Authority (PRHTA) and thePuerto Rico Convention Center District Authority (PRCCDA). OnFebruary 22, 2021 , AGM and AGC agreed to support the revisedPuerto Rico General Obligation (GO) and Public Buildings Authority (PBA) plan support agreement (GO/PBA PSA, and together with the HTA/CCDA PSA and the PREPA RSA, Support Agreements) subject to reaching a satisfactory resolution with respect to the PRHTA and PRCCDA bonds. With the signing of the HTA/CCDA PSA and the expiration of the related termination rights of AGM and AGC under the GO/PBA PSA, AGM and AGC became bound to the GO/PBA PSA. As a consequence, 93.5% ofAssured Guaranty's net par outstanding toPuerto Rico credits as ofMarch 31, 2021 , is now covered by a Support Agreement. The closings of the transactions contemplated by each of the Support Agreements are subject to a number of conditions, including approval by the Title III court of the related plans of adjustment and execution of acceptable final documentation, and there can be no assurance that the resolutions contemplated by the 81 -------------------------------------------------------------------------------- Table of Contents Support Agreements will be achieved, but the Company believes these developments mark a milestone in itsPuerto Rico loss mitigation efforts. For more information about developments inPuerto Rico and related recovery litigation being pursued by the Company, see Item 1, Financial Statements, Note 3, Outstanding Exposure and the Insured Portfolio section below. The Company is currently working with the servicers of some of the RMBS it insures to encourage the servicers to provide alternatives to distressed borrowers that will encourage them to continue making payments on their loans to help improve the performance of the related RMBS. In some instances, the terms of the Company's policy give it the option to pay principal on an accelerated basis on an obligation on which it has paid a claim, thereby reducing the amount of guaranteed interest due in the future. The Company has at times exercised this option, which uses cash but reduces projected future losses. The Company may also facilitate the issuance of refunding bonds, by either providing insurance on the refunding bonds or purchasing refunding bonds, or both. Refunding bonds may provide the issuer with payment relief.
Asset Management and Alternative Investments
AssuredIM is a diversified asset manager that serves as investment adviser to CLOs, opportunity and liquid strategy funds, as well as certain legacy hedge and opportunity funds now subject to an orderly wind-down. As ofMarch 31, 2021 , AssuredIM is a top-twenty five CLO manager by AUM, as published by CreditFlux. AssuredIM is actively pursuing opportunity strategies focused on healthcare and asset-based lending and liquid strategies relating to municipal obligations. Over time, the Company seeks to broaden and further diversify its Asset Management segment leading to increased AUM and a fee-generating platform. The Company intends to leverage the AssuredIM infrastructure and platform to grow its Asset Management segment both organically and through strategic combinations. The Company monitors certain operating metrics that are common to the asset management industry. These operating metrics include, but are not limited to, funded AUM and unfunded capital commitments (together, AUM) and investment advisory management and performance fees. The Company considers the categorization of its AUM by product type to be a useful lens in monitoring the Asset Management segment. AUM by product type assists in measuring the duration of AUM for which the Asset Management segment has the potential to earn management fees and performance fees. For a discussion of the metric AUM, please see "- Results of Operations by Segment - Asset Management Segment." Additionally, the Company believes that AssuredIM provides the Company an opportunity to deploy excess capital at attractive returns improving the risk-adjusted return on a portion of the investment portfolio and potentially increasing the amount of dividends certain of its insurance subsidiaries are permitted to pay under applicable regulations. The Company allocated$750 million of capital to invest in funds managed by AssuredIM plus$550 million of general account assets now managed by AssuredIM under an Investment Management Agreement (IMA). The Company is using these allocations to (a) launch new products (CLOs, opportunity funds and liquid strategy funds) on the AssuredIM platform and (b) enhance the returns of its own investment portfolio. As ofMarch 31, 2021 ,AG Asset Strategies LLC (AGAS) had committed$587 million to funds managed by AssuredIM (AssuredIM Funds), including$252 million that has yet to be funded. This capital was committed to several funds, each dedicated to a single strategy including CLOs, asset-based finance, healthcare structured capital and municipal bonds. Under the IMA with AssuredIM, AGM and AGC have together allocated$250 million to municipal obligation strategies and$300 million to CLO strategies. All of these strategies are consistent with the investment strengths of AssuredIM and the Company's plans to continue to grow its investment strategies.
Capital Management
The Company has developed strategies to efficiently manage capital within the
From 2013 throughMay 6, 2021 , the Company has repurchased 124.1 million common shares for approximately$3,767 million , representing approximately 64% of the total shares outstanding at the beginning of the repurchase program in 2013. OnNovember 2, 2020 , the Board of Directors (the Board) authorized an additional$250 million of share repurchases. Under this and previous authorizations, as ofMay 6, 2021 , the Company was authorized to purchase$147 million of its common shares. Shares may be repurchased from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program are at the discretion of management and will depend on a variety of factors, including funds available at the parent company, other potential uses for such funds, market conditions, the 82 -------------------------------------------------------------------------------- Table of Contents Company's capital position, legal requirements and other factors, some of which factors may be impacted by the direct and indirect consequences of the course and duration of the COVID-19 pandemic and evolving governmental and private responses to the pandemic. The repurchase program may be modified, extended or terminated by the Board at any time and it does not have an expiration date. See Item 1, Financial Statements, Note 14, Shareholders' Equity, for additional information about the Company's repurchases of its common shares. Summary of Share Repurchases Average price Amount Number of Shares per share (in millions, except per share data) 2013 - 2020$ 3,662 121.51$ 30.14 2021 (First Quarter) 77 1.99 38.83 2021 (through May 6) 28 0.61 45.57 Cumulative repurchases since the beginning of 2013$ 3,767 124.11$ 30.35 Accretive Effect of Cumulative Repurchases (1) First Quarter 2021 As of March 31, 2021 (per share) Net income (loss) attributable to AGL $ 0.22 Adjusted operating income 0.21 Shareholders' equity attributable to AGL $
33.49
Adjusted operating shareholders' equity 30.26 Adjusted book value 53.20 _________________
(1) Represents the estimated accretive effect of cumulative repurchases since the beginning of 2013.
The Company also considers the appropriate mix of debt and equity in its capital structure, and may repurchase some of its debt from time to time. Since the second quarter of 2017, AGUS has purchased$154 million in principal of AGMH's outstanding Junior Subordinated Debentures. The Company may choose to make additional purchases of this or other Company debt in the future.
MAC Merger
OnFebruary 24, 2021 , the Company received the last regulatory approval required to merge MAC with and into AGM, with AGM as the surviving company. The merger was effective onApril 1, 2021 . Upon the merger all direct insurance policies issued by MAC became direct insurance obligations of AGM. As a result, the Company wrote off the$16 million carrying value of MAC's insurance licenses in First Quarter 2021. This restructuring of the Company'sU.S. insurance subsidiaries will simplify the organizational and capital structure, reduce costs, and increase the future dividend capacity of theU.S. insurance subsidiaries.
Executive Summary
This executive summary of management's discussion and analysis highlights
selected information and may not contain all of the information that is
important to readers of this Quarterly Report. For a more detailed description
of events, trends and uncertainties, as well as the capital, liquidity, credit,
operational and market risks and the critical accounting policies and estimates
affecting the Company, this Quarterly Report should be read in its entirety and
in addition to AGL's 2020 Annual Report on Form 10-K.
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Financial Performance of Assured Guaranty
Financial Results
First Quarter
2021 2020
(in millions, except per share
amounts)GAAP
Net income (loss) attributable to AGL $ 11$ (55) Net income (loss) attributable to AGL per diluted share$ 0.14 $ (0.59) Weighted Average diluted shares 77.5 92.6
Non-GAAP
Adjusted operating income (loss) (1) (2) $ 43$ 33 Adjusted operating income per diluted share (2)$ 0.55 $ 0.36 Weighted Average diluted shares 77.5 93.4 Segment results Insurance $ 79$ 85 Asset Management (7) (9) Corporate (29) (39) Other - (4) Adjusted operating income (loss) 43 33 Insurance Segment Gross written premiums (GWP) $ 87$ 64 Present value of new business production (PVP) (1) 86 51 Gross par written 5,472 3,033 Asset Management Segment Inflows-third party$ 873 $ 11 Inflows-intercompany 145 77 As of March 31, 2021 As of December 31, 2020 Amount Per Share Amount Per Share (in millions, except per share amounts) Shareholders' equity attributable to AGL$ 6,430 $ 84.67 $ 6,643 $ 85.66 Adjusted operating shareholders' equity (1) 6,032 79.44 6,087 78.49 Adjusted book value (1) 8,851 116.56 8,908 114.87 Gain (loss) related to the effect of consolidating VIEs (VIE consolidation) included in adjusted operating shareholders' equity 1 0.02 2 0.03 Gain (loss) related to VIE consolidation included in adjusted book value (9) (0.12) (8) (0.10) Common shares outstanding (3) 75.9 77.5
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(1) See "-Non-GAAP Financial Measures" for a definition of the financial measures that were not determined in accordance with accounting principles generally accepted inthe United States of America (GAAP), a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure, if available, and for additional details. (2) "Adjusted operating income" is the Company's segment measure. (3) See "- Overview- Key Business Strategies - Capital Management" above for information on common share repurchases. Several primary drivers of volatility in net income or loss are not necessarily indicative of credit impairment or improvement, or ultimate economic gains or losses such as: changes in credit spreads of insured credit derivative obligations, 84
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Table of Contents changes in fair value of assets and liabilities of VIEs and committed capital securities (CCS), changes in fair value of credit derivatives related to the Company's own credit spreads, and changes in risk-free rates used to discount expected losses. Other factors that drive volatility in net income include: changes in expected losses and recoveries, the amount and timing of the refunding and/or termination of insured obligations, realized gains and losses on the investment portfolio (including credit impairment), changes in foreign exchange rates, the effects of large settlements, commutations, acquisitions, the effects of the Company's various loss mitigation strategies, and changes in the fair value of investments in AssuredIM Funds. Changes in the fair value of AssuredIM Funds affect the amount of management and performance fees earned. Changes in laws and regulations, among other factors, may also have a significant effect on reported net income or loss in a given reporting period.
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